A brand new investigation into Florida’s property insurance coverage business is ready to start, elevating important questions on insurer profitability, monetary transparency, and the true causes behind skyrocketing premiums for policyholders. As reported by Lawrence Mower in Florida Home to Examine Whether or not Property Insurers Hid Earnings With Accounting Tips, the Florida Home of Representatives is launching a probe to find out whether or not property insurers have been utilizing accounting maneuvers to masks their earnings whereas concurrently justifying fee hikes.
For years, Florida policyholders have confronted steep will increase in property insurance coverage premiums, with insurers blaming rising litigation prices, fraud, and pure catastrophe dangers. Nonetheless, the Florida Home’s latest transfer suggests there could also be extra to the story. Lawmakers wish to know whether or not insurers have been shifting cash inside their company constructions—probably to affiliated reinsurance firms or different entities—to make their major insurance coverage companies seem much less worthwhile than they really are.
I and different insurance coverage business critics argue that some Florida insurance coverage firms have exploited advanced accounting techniques to siphon off earnings whereas portraying themselves as struggling companies. If true, these monetary methods may very well be artificially inflating the necessity for larger premiums and deceptive each regulators and shoppers in regards to the monetary well being of the business.
This isn’t a brand new scheme. In 2008, I wrote Insurance coverage Business Claims And Charge Practices Come Below Public Scrutiny, and famous the next:
Robert Hunter has lengthy studied and criticized many actions of the insurance coverage business. He’s an actuary by commerce, a former insurance coverage commissioner, and serves because the Insurance coverage Director for the Client Federation. Florida Insurance coverage Commissioner Tom McCarty requested Hunter to testify in regards to the “duping” and alleged misinformation generated by insurance coverage business commerce associations. Hunter offered a prolonged report: Property/Casualty Insurance coverage in 2008: Overpriced Insurance coverage and Underpaid Claims End in Unjustified Earnings, Padded Reserves, and Extreme Capitalization, J. Robert Hunter, January 10, 2008. He detailed and offered proof that the insurance coverage business has made important earnings and continues to take action regardless of offering alleged propaganda attempting to reveal in any other case.
My impression of his testimony is that insurance coverage firm executives attempt to cover true earnings being made to maintain charges as excessive as potential. Hunter primarily indicated that insurance coverage firm administration lied in its filings and practices. At one level, he known as the actions probably ‘unlawful’ when Senators have been questioning if prison exercise occurred. From expertise, most sincere folks and company representatives brazenly focus on and present paperwork when authorities demand solutions and proof of actions. Dishonest folks and entities cover and attempt to keep away from straight answering the identical as a result of guilt can be admitted. Anyone watching Allstate answering and avoiding manufacturing of requested data final week through the Workplace of Insurance coverage Regulation listening to has to have an impression that Allstate is hiding one thing actually unhealthy.
One of many major areas of focus of the present investigation will possible be the connection between Florida-based insurers and their affiliated reinsurance entities. Many insurers buy reinsurance from firms they’re financially related to, permitting them to shift premiums and probably obscure true earnings. This follow raises issues about whether or not these insurers are gaming the system—paying inflated reinsurance costs to associated entities whereas passing the price onto shoppers.
Florida lawmakers and client advocates have lengthy suspected that inner monetary preparations between affiliated firms could also be a key issue behind the relentless fee will increase imposed on owners. The upcoming investigation goals to carry transparency to those transactions and decide whether or not legislative or regulatory modifications are mandatory to guard policyholders from unfair pricing practices.
If the investigation confirms that insurers have been manipulating their monetary reporting, it might set off a wave of reforms. Lawmakers could push for elevated oversight of insurer monetary practices, stronger client protections, and potential authorized penalties for firms discovered to have misled regulators.
For Florida owners already burdened by excessive insurance coverage prices, this inquiry presents a glimmer of hope. If insurers are discovered to be participating in misleading monetary techniques, state officers might take steps to make sure that charges are set extra pretty.
Insurance coverage regulators should demand and obtain clear, sincere monetary reporting from insurance coverage firms to correctly decide if the requested fee is truthful. Policyholders should know whether or not their rising premiums are genuinely justified by elevated dangers and losses or if they’re the results of hidden company revenue methods.
Thought For The Day
“We are able to simply forgive a toddler who’s afraid of the darkish; the actual tragedy of life is when males are afraid of the sunshine.”
—Plato
